12 - BL - Insolvency Individ Flashcards
What are the two personal insolvency procedures?
(1) Individual Voluntary Arrangements (‘IVAs’);
(2) bankruptcy
What is the process of obtaining an IVA?
The debtor drafts proposals setting out a statement of their affairs (eg full details of assets and liabilities).
The nominee (insolvency practitioner) submits a report to the court.
What percentage of Creditors need to approve an IVA?
Creditors holding at least 75% (by value) of the debt must vote to approve the terms of the IVA.
Must include at least 50% unconnected parties
How can a debtor get a moratorium for an IVA?
- Apply to the court for an interim order.
- If the court grants the order, it brings about a moratorium,
What does the moratorium for an IVA do?
Freezing existing or proposed bankruptcy and other proceedings and legal process (including execution, landlord’s right of peaceable re-entry and/or distress for rent) against the debtor, without leave (in any such case) of the court.
How long does a moratorium for an IVA last?
14 days which the court can extend.
Who is bound by an IVA?
The debtor and all of their unsecured creditors
Does not bind preferential & secured creditors unless they consent to the IVA
What happens if the debtor doesn’t keep up with the IVA?
The supervisor can usually petition for their bankruptcy.
How does a bankruptcy begin
a creditor presents a bankruptcy petition.
Who can a Bankruptcy petition be brought against?
An individual
- present or
- domiciled
in the UK
Bankruptcy - how is the debtor’s inability to pay evidenced?
- a statutory demand for £5,000 that has neither been satisfied within 21 days from service of that demand, nor set aside by the court; or
- a judgment debt that has been returned unsatisfied
Court has discretion to make a bankruptcy order.
Bankruptcy - What restrictions are placed on the debtor?
- deprived of ownership of their property except for their reasonable domestic needs. 🏡
- obtaining credit of over £500 without disclosing the bankruptcy, 💷
- acting as a director or being involved in the management of a company, 🎩
- practising in certain professions. 👨💼
- giving gifts 🎁
Who manages the Bankrupts’ assets?
The bankrupt’s estate vests in the Trustee in Bankruptcy immediately upon appointment of trustee or Official Receiver
What is the order of creditors in a personal bankruptcy?
- secured creditors (but limited to the value of the security itself and ranking with ordinary unsecured creditors for any excess amount owing); 🏡⛓️
- expenses of the bankruptcy; 🤓
- specially preferred creditors (training/apprenticeship fees);👨🏫
- preferential creditors (similar to those on corporate winding up); 🧑🍳🇬🇧
- ordinary unsecured creditors; 😒
- statutory interest; 🏦
- debts of a spouse (must be provable but they are postponed to other creditors); and finally, 👰
- any surplus is payable to the bankrupt. 🥳
What are the duties of a Bankrupt in respect of the Trustee or Official Receiver?
(a) give information;
(b) attend on the trustee
(c) do all such other things, as the trustee may for the purposes of carrying out his functions reasonably require.”
What if the debtor breaches their duty to the Trustee/Official Receiver?
It is a criminal offence could face
- imprisonment for up to two years and
- unlimited fines.
Also, the bankrupt runs the risk of having their automatic discharge suspended.
When is a bankrupt generally discharged from bankruptcy?
1 year
What a Bankruptcy Restriction Order?
Used in egregious cases for between 2 and 15 years:
- unable to act as a director 🎩
- unable to get credit of over £500 without disclosing the BRO 💷
Breach is a criminal offence punishable by fine and/or imprisonment.
A Trustee has the power to challenge voidable transactions and will do this with the aim of increasing the assets available to creditors. What are the voidable transactions?
- Transactions at an undervalue 🎁
- Preferences 😚
- Transactions defrauding creditors 👺
What is a Transaction At an Undervalue?
- a gift
- consideration below M.V.
At what time can a Transaction At an Undervalue occur?
Within 5 years preceding the day of the presentation of the bankruptcy petition
Is insolvency required for a Transaction At an Undervalue?
🎁
- Not for 0 - 2 years
- required for 2 - 5 years
(There is no intent required for TUV)
- Insolvency is presumed if where the transactions was with an associate.
What is the motive requirement of a Transaction At an Undervalue?
🎁
None
Only requires insolvency
What is Preference?
😚
A creditor is put in a better position than they would have been if the individual had been made bankrupt.
Requires:
- insolvency
AND
- intention
When must Preference occur?
- Unconnected person - Within 6 months preceding the day of the presentation of the petition
- Connected person - within 2 years preceding the day of the presentation of the petition.
Is insolvency required for Preference?
Yes
It must be proved that the individual was insolvent at the time of the preference or became insolvent as a result of it.
What is the motive requirement of Preference?
- desire to prefer the creditor.
There is a rebuttable presumption that the bankrupt individual was influenced by the desire to prefer the creditor where the preference is to an associate
What is Transactions Defrauding Creditors ?
👺
- a transaction at an undervalue 🎁
WITH
- an intent to defraud creditors 👺
At what time can a Transactions Defrauding Creditors occur?
- no time limit
therefore a Trustee is most likely to bring a TDC claim when they are outside the time limits for a transaction at an undervalue claim.
Is insolvency required for Transactions Defrauding Creditors?
👺
No
When is insolvency presumed for an individual TUV?
If the TUV is to a connected party
(There is no need for intent for a TUV for individuals)
What is the effect of a TUV to a connected party?
- assumed insolvent so can go back 5 years
